Japan: Formalization of Banking Supervision Including a Reversal

Abstract

AbstractThis chapter deals with the case of Japan, which experienced a reversal of the formalization of banking supervision. Additionally, this chapter outlines the on-site examination process and the main objectives of bank examinations. During the initial adoption of formal banking supervision, its main role was the “education” of bankers rather than proper prudential oversight. Formal banking supervision was suspended between 1893 and 1914 but was reintroduced in response to requests from both bankers and the government. This reversal reflected the development of the Japanese economy in the 1900s and 1910s, and thus the main driver of the formalization of banking supervision in Japan was not a financial crisis. The gradual development of the banking sector and better-educated bankers in the early twentieth century provided the background for the transformation of the supervisor’s role. The formalization process was completed with the enactment of the Banking Act of 1927 and the creation of the Bank Inspection Section within the Ministry of Finance in 1927.